My biggest influence in investing, and the person I most admire in the financial world, is John C. Bogle, founder of Vanguard Mutual Funds.
My favorite Sunday morning comic strip is Dilbert, by Scott Adams, which pokes fun at corporate and office culture.
Bogle and Adams, vastly different in age, style, and occupation have each enriched my life, but I could never have imagined any connection between the two. Therefore, I was both surprised and intrigued while reading one of Bogle’s books to find a reference to some investment advice given by Adams.
The advice came from a book Adams wrote called Dilbert and The Way of the Weasel. The shout out from Bogle was the highest of praise in my mind so I immediately went to the library and checked-out Adam’s book.
This is an actual book, not just a collection of Dilbert comics. While Adams sarcastic sense of humor shines through, the book offers some serious and useful advice, albeit in a light-hearted manner.
I discovered from the book that Adams is a serious student of investing and at one time had considered writing a book geared towards the beginning investor. Adams reports that, “After extensive research on all topics related to personal investing, I realized I had a problem. I could describe everything a young first-time investor needs to know on one page. No one wants to buy a one-page book even if that page is well written…”
So instead of writing a book on investing Adams devoted one page in Dilbert and the Way of the Weasel to the topic. It was this advice that caught Bogle’s attention and earned his endorsement.
Adams’ conclusion that everything a beginning investor needs to know can be written on one page has intrigued me ever since I read it. While it is probably true that no one wants to read a one-page book it occurred to me that one page is the perfect length for a blog post. So with apologies to Adams for using his idea, here is my version of:
Everything You Need to Know About Investing On One Page
- Reward is not possible without risk
- You can’t beat the stock market
- Over time almost no one else can beat the market either
- Your best bet is to quit trying to beat the market and invest in low-cost index funds
- Diversification is investing’s “free lunch”
- Take full advantage of employer matching programs. When someone offers to give you money to invest – take it!
- Take full advantage of government-sponsored tax-advantaged retirement accounts (i.e. 401(k)s, IRAs, Roth IRAs, etc.) Less money for the government means more money for you.
- Automate your investment plan (substitute technology for willpower)
- Keep your investment plan simple
- Focus on the things you can control. These include:
- The percentage of your income you invest
- The way you allocate your investments between stocks, bonds, and cash
- Investment costs
- Your behavior (see below)
- Behavior is more important than knowledge. Avoid the following destructive behaviors:
- Loss aversion
- Following the crowd
- Stay the course
Over the next several months I am going to write one or more blog posts on each of these bullet points. I will try to keep the posts short, informative, and entertaining. At the end of that time you will have the basic knowledge you need to be a successful investor. This information could transform your financial life and I promise it will be well worth your time, so come along for the ride. It’s going to be a lot of fun (and, yes, I really believe investing is a lot of fun).